MNI US MARKETS ANALYSIS - Fed Pricing Partially Fades PMI Hit

Highlights: 

• Fed rate pricing partially reverses PMI hit
• AUD surges as CPI limits RBA room to manoeuvre
•  JPY implied vols creep higher as BoJ decision in focus

US TSYS: Lagging Broader Sell-Offs, Durable Goods and 5Y Supply Ahead

• Treasuries see broad downward pressure but lag a larger sell-off in European and in particular Australian FI earlier today after beats for Australian CPI and the German Ifo index.
• Cash yields sit 2.6-3.3bps higher although the introduction of the new 2 after yesterday’s auction sees 2s10s at -30.5bps for a 2.5bp increase from yesterday’s close.
• TYM4 is close to session lows of 107-25 (- 09+), on typical cumulative volumes approaching 300k, but remains above yesterday’s pre-PMI low of 107-20+. The bearish trend condition remains in place with support seen at 107-13+ (Apr 16 low) after which lies 107-07+ in the first of some Fibo projection levels.
• Earnings season continues whilst today’s docket focus is on durable goods orders in the final update before tomorrow’s Q1 GDP advance, before 5Y supply.
• Data: MBA mortgage data Apr 19 (0700ET), Durable goods Apr prelim (0830ET)
• Note/bond issuance: US Tsy $30B 2Y FRN (1130ET), US Tsy $70B 5Y Note auction, 91282CKP5 (1300ET)
• Bill issuance: US Tsy $60B 17W Bill auctions (1130ET)

STIR: Fed Rates Partially Reverse PMI Hit

• Fed Funds implied rates have lifted overnight on global factors, with help from higher than expected Australian CPI and a small beat for the German Ifo index.
• Meetings tilted later into the year have now reversed a little more than half of their drop seen on yesterday’s softer than expected US PMIs.
• Cumulative cuts from 5.33% effective: 1bp May, 4bp Jun, 11.5bp Jul, 23bp Sep, 30bp Nov and 42bp Dec.
• Today sees primary focus on preliminary durable goods orders for March. The Atlanta Fed’s GDPNow will then be finalized ahead of tomorrow’s national accounts Q1 advance release.

US TSY FUTURES: OI Points To Long Setting Bias On Tuesday

The combination of yesterday’s PMI-driven uptick in Tsy futures and OI data points to modest net long setting across most contracts, with the only exception coming via very modest net short cover in UXY futures.

• A fair proportion of yesterday’s rally has already faded, with global impulses factoring in so far on Wednesday.
• A reminder that all contracts were still subjected to net short positioning as of last Tuesday (per the CFTC CoT report), although that will be subject to some bias from basis trade positioning.

STIR: OI Points To Mix Of Long Setting & Short Cover In  SOFR Futures On Tuesday

The combination of yesterday’s rally in SOFR futures and preliminary OI data points to net long setting dominating through the greens, while net short cover was seemingly seen in all of the blue contracts.

• The softer-than-expected U.S. flash PMI data drove most of yesterday's rally in SOFR futures.
• The bulk of yesterday’s contained dovish move in Fed pricing has largely retraced, with several global factors weighing on core global FI markets in pre-NY dealing.

JAPAN: Opinion Poll Shows Voters Want LDP Out Ahead Of Crucial By-Elections

The latest opinion poll from outlet Mainichi makes difficult reading for PM Fumio Kishida and his Cabinet, showing that a significant majority of respondents want to see the governing conservative Liberal Democratic Party (LDP) ousted from power at the next general election. The poll, carried out from 20-21 April, asked respondents what their desired outcome of the next general elections would be. Sixty-two percent of respondents said they want to see a change in gov't, with just 24% in favour of a continuation of the current coalition involving the LDP and the Komeito party.

• Kishida faces a significant test on 28 April, with three parliamentaryby-electionstaking place that could have a significant impact on the PM's longevity in office. All three seats were previously held by the LDP. However, in the face of declining support and unlikely odds, the party is only standing a candidate in the Shimane No.1 seat.
• Kishida faces an internal LDP leadership contest in September. One of the few paths to the LDP reconfirming Kishida would be a strong general election performance ahead of then. However, a loss in Shimane could deal a blow to the prospects of a summer election, and therefore raise the likelihood of the LDP replacing Kishida.
• It should be noted that in spite of the poor polling for Kishida and the LDP, a change in governing party remains unlikely. The main opposition liberal Constitutional Democratic Party has not benefited substantiallyfrom the LDP's unpopularity, trailing the governing party in all polling.

EUROPE ISSUANCE UPDATE: 

Gilt syndication: Final terms
* GBP6.75bln (larger than the GBP4.75-6.00bln MNI expected) of the 4.375% Jul-54 Gilt. Books closed in excess of GBP90bln, spread set at 3.75% Oct-53 gilt (GB00BPCJD997) +1.75bp (Guidance was: +1.75/+2 bps).

GGB syndication: Spread set
* EUR Benchmark (MNI expects E1.5-2.5bln) of the 30-year Jun-54 GGB. Books in excess of E32bln, spread set at MS+165bp (guidance was MS+175bp area then revised to MS+170bp +/-5bps (WPIR).

Bund auction results
* E4bln (E3.239bln allotted) of the 2.20% Feb-34 Bund. Avg yield 2.54% (bid-to-offer 2.02x; bid-to-cover 2.49x).

FOREX: AUD on Top as CPI Limits RBA

• AUD is outperforming, rising against all others in G10 on the back of the hotter-than-expected CPI release overnight. Quarterly CPI rose 1.0% vs. Exp. 0.8% and strength in trimmed mean metrics gives the RBA less room to consider a first rate cut of the cycle later in 2024. Support for AUD has put AUD/USD within range of clustered resistance at the 200- and 50-dmas (0.6529 and 0.6534 respectively).
• Scandi currencies are on the softer side, responding to a sharp uptick in the Swedish unemployment rate metrics - the March SA unemployment rate surprisingly rose 8.6% from a revised 8.1% - the highest since mid-2021. EUR/SEK is higher in return, rising for the first session in five.
• The USD Index is middling-to-higher, recovering a small part of the PMI-induced losses posted during the Tuesday session, aiding both EUR/USD and GBP/USD off the overnight highs.
• USD/JPY printed a new cycle best in early Europe/late Asia, keeping market focus on the tolerance of the Japanese authorities toward protracted currency weakness. Nikkei reported late yesterday that the BoJ board will discuss JPY performance at this week's meeting, leaving markets to maintain a moderate downside skew for USD/JPY in near-term options pricing.
• Focus for the session ahead turns to prelim March durable goods orders data on top of Canadian retail sales and the BoC minutes release. The speaker slate is considerably quieter relative to a busier beginning of the week, with no major appearances set from the ECB or BoE. The Fed remain inside their pre-decision media blackout period.

JPY: Modest Downside Skew for Spot in Post-BoJ Expiries

• The break above Y155.00 in overnight trade keeps the JPY in focus as the market continues to attempt to gauge the limits and triggers for potential intervention. As a result, Friday’s Tokyo CPI print and BoJ rate decision are in focus, particularly after the Nikkei article overnight suggested the board would discuss recent JPY weakness directly at their meeting – which starts Thursday.
• Vol markets are bid, with one-week USD/JPY implied rising back toward 11 points as the contract captures next week’s Fed rate decision. Nonetheless, markets are pricing a moderate downside skew for the pair for options expiring at Friday’s NY cut, with implied probabilities seeing a greater likelihood for spot lower at expiry:

Above:

• Y155.00 – 46.9%
• Y155.50 – 23.5%
• Y156.00 – 16.4%

Below:

• Y155.00 – 53.1%
• Y154.50 – 36.6%
• Y154.00 - 20.4%

Our full BoJ preview is here: https://roar-assets-auto.rbl.ms/files/61017/BOJ%20... , with market focus on any messaging to support a potential July rate hike, and the view surrounding risks to inflation sustainability ahead.

OPTIONS: Expiries for Apr24 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600-10(E1.5bln), $1.0650(E889mln), $1.0700-05(E2.0bln), $1.0725(E647mln), $1.0830-35(E1.4bln), $1.0880-90(E2.2bln)
• USD/JPY: Y153.50($1.4bln), Y154.00($652mln), Y154.10-25($827mln), Y155.40($1.1bln)
• GBP/USD: $1.2645-65(Gbp1.1bln)
• AUD/USD: $0.6400(A$622mln)
• USD/CAD: C$1.3565-76($1.3bln), C$1.3680($771mln)
• USD/CNY: Cny7.2530($758mln), Cny7.2600($1.1bln)

EQUITIES: Eurostoxx 50 Futures Extend Recovery From Friday's Low

Eurostoxx 50 futures traded higher Tuesday, extending the recovery from 4762.00, the Apr 19 low. The contract has cleared the 20-day EMA and breached resistance at 4990.00, the Apr 15 high. This highlights a stronger reversal and signals the end of the correction between Apr 2 - 19. A continuation higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00. The short-term trend condition in S&P E-Minis remains bearish and the latest recovery appears - for now - to be a correction. Last Friday’s bearish extension reinforced current short-term conditions. The contract has recently cleared 50-day EMA, signalling scope for a continuation lower. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is 5153.25, the 20-day EMA. A clear break of the average would signal a possible reversal.
 

COMMODITIES: WTI Futures Recover From Recent Lows, Remain Above Key Short-Term Support

WTI futures have recovered from their recent lows and price remains above key short-term support at $80.85, the 50-day EMA. The recent move lower highlights a corrective phase and a break of the 50-day average would signal a stronger bearish theme and open $76.07, the Mar 11 low. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. A break would resume the uptrend. Gold is trading closer to its recent lows. The precious metal has traded below the 20-day EMA and this signals the start of a possible corrective cycle. A continuation lower would signal scope for an extension towards $2221.5, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought trend condition to unwind. Key resistance and the bull trigger has been defined at $2431.5, the recent Apr 12 high.
 

Date	GMT/Local	Impact	Country	Event
24/04/2024	1100/0700	**	US	MBA Weekly Applications Index
24/04/2024	1230/0830	**	CA	Retail Trade
24/04/2024	1230/0830	**	US	Durable Goods New Orders
24/04/2024	1300/1500	**	BE	BNB Business Sentiment
24/04/2024	1400/1600		EU	ECB's Schnabel remarks at '"Frankfurt liest ein Buch"
24/04/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
24/04/2024	1530/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
24/04/2024	1700/1300	*	US	US Treasury Auction Result for 5 Year Note
24/04/2024	1730/1330		CA	BOC Minutes (Summary of Deliberations)
25/04/2024	0600/0800	*	DE	GFK Consumer Climate
25/04/2024	0600/0800	**	SE	PPI
25/04/2024	0645/0845	**	FR	Manufacturing Sentiment
25/04/2024	0700/0900	**	ES	PPI
25/04/2024	0700/0900	**	SE	Economic Tendency Indicator
25/04/2024	0700/0900		EU	ECB's Schnabel Speech for 'ChaMP'
25/04/2024	1000/1100	**	GB	CBI Distributive Trades
25/04/2024	1100/0700	***	TR	Turkey Benchmark Rate
25/04/2024	1230/0830	***	US	Jobless Claims
25/04/2024	1230/0830	**	US	WASDE Weekly Import/Export
25/04/2024	1230/0830	***	US	GDP
25/04/2024	1230/0830	*	CA	Payroll employment
25/04/2024	1230/0830	**	US	Advance Trade, Advance Business Inventories
25/04/2024	1400/1000	**	US	NAR Pending Home Sales
25/04/2024	1430/1030	**	US	Natural Gas Stocks
25/04/2024	1500/1100	**	US	Kansas City Fed Manufacturing Index
25/04/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
25/04/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
25/04/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
26/04/2024	2301/0001	**	GB	Gfk Monthly Consumer Confidence
26/04/2024	2330/0830	**	JP	Tokyo CPI
26/04/2024	0130/1130	**	AU	Trade price indexes
26/04/2024	0200/1100	***	JP	BOJ Policy Rate Announcement
26/04/2024	0645/0845	**	FR	Consumer Sentiment
26/04/2024	0800/1000	**	EU	M3
26/04/2024	0800/1000	**	EU	ECB Consumer Expectations Survey
26/04/2024	0800/1000		EU	ECB's De Guindos at Academia Europea Leadership
26/04/2024	1230/0830	**	US	Personal Income and Consumption
26/04/2024	1400/1000	**	US	U. Mich. Survey of Consumers
26/04/2024	1500/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
26/04/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly